- Oaktree co-founder Howard Marks sent clients a note Thursday assuring them that the firm’s credit exposure to software companies is “extremely small on an absolute basis and relative to peers,” and that Oaktree has maintained a “particularly high bar” for new software transactions over the past 12 to 18 months
- Direct lending is only about 20% of Oaktree’s performing credit investments and less than 15% of its total AUM — well below the industry average, where many managers carry 30%+ software and tech exposure in their direct lending books
- Oaktree has just over $10 billion in public direct lending vehicles, compared to $40–50 billion for leading peers — a deliberate positioning that Marks says has kept the firm relatively insulated from the current sector stress
- Marathon Asset Management’s Bruce Richards has warned that as much as 15% of software direct lending could default in the coming years; Goldman’s global co-head of private credit counters that most managers sit at the top of the capital structure and are relatively protected from restructurings
What Happened?
Oaktree Capital Management co-founder Howard Marks sent clients a letter Thursday seeking to distance the firm from the growing private credit distress concentrated in software lending. Marks wrote that Oaktree’s credit exposure to software companies is “extremely small on an absolute basis and relative to peers,” and that over the past 12 to 18 months Oaktree has applied a “particularly high bar” for participating in new software transactions. He also emphasized that direct lending — the sub-sector facing the most acute redemption pressure — represents less than half of Oaktree’s private credit book and under 15% of total assets under management. The note arrives as private credit funds globally are retreating from software borrowers, several software PE-backed sales have stalled, and redemption gates have been imposed at a growing number of funds.
Why It Matters?
Marks’s reassurance reflects a broader divergence that is emerging within private credit between firms heavily exposed to software direct lending — where stress is now clearly building — and those like Oaktree that built their private credit franchises around distressed debt, mezzanine, and asset-backed lending rather than sponsor-backed direct loans. Many leading direct lenders have 30% or more of their portfolios in software and tech, though Goldman’s global private credit co-head Vivek Bantwal argues that most of this credit sits at the top of the capital structure and is relatively insulated from restructurings. Marathon’s Bruce Richards is more alarmed, warning that up to 15% of software direct lending could default over the coming years. The gap between these views reflects genuine uncertainty about how the current market stress — accelerated by the Iran war and rising redemption pressure — will ultimately manifest in actual credit losses.
What’s Next?
Oaktree’s relatively small public direct lending book ($10 billion versus peers’ $40–50 billion) limits its exposure to the retail investor redemption pressure that has forced gates at several competitors. But the broader private credit market is entering a period of reckoning: software borrowers are struggling to find new lenders, PE-backed software sales are stalling, and regulators from the Bank of England to the U.S. Treasury are escalating scrutiny of the sector’s opacity and interconnections with regulated banks. The next six to twelve months will test whether the stress remains concentrated in the most aggressive direct lending books — or spreads into the wider private credit ecosystem that has become a cornerstone of institutional portfolios worldwide.
Source: Bloomberg
